Question

Reporting Financial Statement Effects of Bond Transactions On January 1, 2016, McKeown, Inc., issued $350,000 of...

Reporting Financial Statement Effects of Bond Transactions

On January 1, 2016, McKeown, Inc., issued $350,000 of 12%, 9-year bonds for $314,792, yielding a market (yield) rate of 14%. Semiannual interest is payable on June 30 and December 31 of each year.

Required
a. Show computations to confirm the bond issue price.
(Use a calculator or Excel for your calculations. Round your answers to the nearest dollar.)

Present value of principal repayment $Answer
Present value of interest payments $Answer
Selling price of bonds $Answer

b. Record the bond issuance, semi-annual interest payment and discount amortization on June 30, 2016 and the semi-annual interest payment and bond amortization on December 31, 2016 in the financial statement effects template.

Balance Sheet
Transaction Cash Asset + Noncash Assets = Liabilities - Contra-Liabilities + Contrib. Capital + Earned Capital
1/1/16 Issue bonds at a discount $Answer + $Answer = $Answer - $Answer + $Answer + $Answer
6/30/16 Interest payment on bonds Answer + Answer = Answer - $Answer + Answer + Answer
12/31/16 Interest payment on bonds Answer + Answer = Answer - $Answer + Answer + Answer
Income Statement

Revenue
-
Expenses
=
Net Income
$Answer - $Answer = $Answer
Answer - Answer = Answer
Answer - Answer = Answer
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Homework Answers

Answer #1

a.

Present value of principal repayment 103551
Present value of interest payments 211241
Selling price of bonds 314792

Working:

Cash Flow Table Value Present Value
$350,000 par (maturity) value 0.29586 103551
$21,000 interest payment* 10.05909 211241
Price of Bond 314792

*Interest payment = $350000 x 12% x 1/2 = $21000

b.

Balance Sheet Income Statement
Transaction Cash Asset + Noncash Assets = Liabilities - Contra-Liabilities + Contributed Capital + Earned Capital Revenue - Expenses = Net Income
1/1/16 Issue bonds at a discount 314792 + 0 = 350000 - 35208 + 0 + 0 0 - 0 = 0
6/30/16 Interest payment on bonds -21000 + 0 = 0 - -1956 + 0 + -22956 0 - 22956 = -22956
12/31/16 Interest payment on bonds -21000 + 0 = 0 - -1956 + 0 + -22956 0 - 22956 = -22956
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